PLI Push: LG Electronics Begins Production Of AC Compressors At Rs 300-Crore Noida Plant

LG Electronics India Pvt. has kicked off its local manufacturing line of dual inverter air conditioner compressors at its Greater Noida facility, the company said on Monday.

This makes the South Korean consumer durable maker the first brand to manufacture its own compressors in the country.

"This continuous expansion is a step towards making self-reliant India a reality," said Hyunjin Lee, managing director (manufacturing) at LG Electronics India.

The company has invested around Rs 100 crore in the first phase towards setting up the facility.

According to LG Electronics India, the new manufacturing line has a capacity to roll out one million units of compressors—a key component for air conditioners—per annum.

With this expansion, the company is doubling down on a market where only 5-7% of homes have air conditioning but is growing fast.

Statista forecasts the market to reach 9.7 million units in FY23, as against 7.2 million units in FY20. Increasing demand for home appliances, along with a fairly low penetration rate, has left the domestic air conditioner market with potential for growth, according to the market research platform.

LG's new plant is part of the government's production-linked incentive scheme, that aims to reduce the import of components—which make up 50% of the cost of an air conditioner—by promoting local manufacturing. LG locally makes other parts like condensers and evaporators. The company has committed to a total investment of Rs 300 crore under the PLI scheme.

Rival Daikin Airconditioning India Pvt.—the largest investor in the PLI scheme—is also constructing a new plant in Sri City, Andhra Pradesh, which will begin operations in August.

Blue Star Ltd. will look at investing in a compressor plant when it crosses the 1.5 million unit sales mark, B Thiagarajan, managing director at the company, told BQ Prime. "Next year, we will cross one million and in another two to three years, we should be [there]."

The PLI scheme extends an incentive of 6% to 4%—on a reducing basis—on incremental sales for a period of five years subsequent to the base year and one year of gestation period. The government pegs domestic value addition to grow from 15-20% to 75-80%.

The investment into the component ecosystem has ensured that two thirds of LG's air conditioners that are made in India use locally sourced parts. A few months ago, it used to be just 40%, according to the company.

Lee said that the company is aligned with the government's Made-In-India initiative. As part of that, LG has recently started manufacturing side-by-side refrigerators at the Pune plant. "LG Electronics aims to make India a powerful manufacturing hub ... We are continuously working towards strengthening our local operations," he said.

LG also aims to export Made-In-India parts to other countries where it operates and could even look at selling compressors to other brands.

LG Electronics India's profit after tax fell 23% to Rs 1,175 crore in FY22, according to recent regulatory filings made to the Registrar of Companies. However, its total income rose nearly 10% to Rs 17,171 crore.